April 11, 2018
U.S. Core Inflation Accelerates as Drag From Phone Costs Fades
A key measure of U.S. inflation accelerated to the highest in a year as a drag from mobile-phone costs faded, bearing out the Federal Reserve’s forecast for a pickup in price gains. Excluding food and energy, the core consumer price index rose 2.1 percent from March 2017 after a 1.8 percent gain in the year through February, a Labor Department report showed Wednesday. The gauge was up 0.2 percent from the prior month, matching the median estimate of economists. Including all items, the CPI was down 0.1 percent from February on a drop in gasoline costs, with the index up 2.4 percent from a year earlier, also the most in a year. The core CPI’s pickup will help reinforce the view of policy makers that inflation had been weighed down by transient factors such as the unusual weakness in the cost of wireless-phone services. The acceleration will reinforce Fed expectations that its preferred gauge of inflation — a separate consumption-based figure from the Commerce Department — is gradually approaching its 2 percent goal. The advance in the core CPI brought the three-month annualized gain to 2.9 percent, after 3.1 percent in February. Mobile-phone service prices increased 0.2 percent in March after falling 0.5 percent the prior month. They had slumped a record 7 percent in March 2017 from the previous month as carriers sweetened data packages, and weakness in the category, along with softer prices for items such as cars and medical care, continued to restrain core CPI for the next few months.
Stocks Rally Amid U.S., China Conciliatory Remarks: Markets Wrap
Stocks surged after conciliatory comments from U.S. President Donald Trump and Chinese President Xi Jinping aimed at releasing some pressure from the trade tensions between the world’s biggest economies. Treasuries fell with the dollar. Major U.S. equity indexes spiked higher Tuesday afternoon following Trump praise of Xi’s “kind words on tariffs and automobile barriers.” Earlier, in a keynote address before the Boao Forum for Asia, China’s leader backed free trade and dialog to resolve disputes and pledged to open the nation’s banking and auto manufacturing sectors. With the newly friendly tone, investors began weighing whether fears of an outright trade war had become overblown. That, in turn, reinvigorated faith in the synchronized global-growth story ahead of earnings season, even after a Federal Reserve official cautioned that the spat won’t be resolved soon. Stocks continued their advance despite a midday hiccup when additional revelationsarose about Monday’s raid on the office of Trump’s personal lawyer, Michael D. Cohen, by the Federal Bureau of Investigation. “Without the underlining dynamism of momentum in the markets and supported by improving fundamentals, there is going to be a tendency for the market to be knocked around by headlines,” said Kevin Caron, a senior portfolio manager at Washington Crossing Advisors. “As we go to the next week or so, this back and forth on trade probably dominates.”
U.K. Factory Output Falls for First Time in Almost a Year
U.K. manufacturing shrank for the first time in 11 months in February, led by output of machinery and equipment. The drop brings to an end an unprecedented run for manufacturers that helped to underpin the economy as a squeeze from rising prices took its toll on consumer spending. Factory output declined 0.2 percent — missing expectations for a 0.2 percent increase — after stagnating in January. Overall industrial production rose a smaller-than-forecast 0.1 percent, with the growth largely due to below-average temperatures boosting demand for energy. Samuel Tombs at Pantheon Macroceconomics expects a stronger production figure in March, but says it won’t be enough to offset weakness in retail and consumer activity and construction, all of which took a hit from the “Beast from the East’’ snowstorm. GDP growth may be weaker in the first quarter than the 0.3 percent predicted by the Bank of England, which casts doubt on whether a May interest-rate increase is as likely as market pricing suggests. The National Institute of Economic and Social Research said Wednesday it was forecasting an expansion of just 0.2 percent, half the pace of the fourth quarter, with the severe weather likely to have hurt “all major sectors of the economy.”
French Economy Loses Pace as Macron Gambles for Long-Term Gains
The French economy may have just had its worst quarter in more than a year and there could be further pain ahead if planned strikes opposing President Emmanuel Macron’s reforms go forward. Industrial sentiment fell to the lowest in more than a year in March and manufacturing output unexpectedly declined in February, according to reports this week. A broad measure of private sector activity is at a seven-month low. The Bank of France said GDP may have only risen 0.3 percent in the first quarter, down from a 0.7 percent pace at the end of 2017, and the weakest since the third quarter of 2016. Some of that may be explained by snowstorms that affected activity across much of the continent. France could see further downside pressure this quarter as unions clash with Macron over his proposals, which include changes to the rail network and education system. With close to 40 days of industrial action threatened, that would hurt transport and broader economic output. But those hits will only be short term, and Macron may refuse to buckle, gambling that the long-term benefits of his reforms, boosting competitiveness and helping to reduce unemployment. France’s corporate sector is already feeling the pinch. Battling worker demands for a share of profits, airline Air France-KLM estimated this week that seven days of stoppages since late February will shave 170 million euros ($210 million) off operating income. More action is planned for this month. Bank of France Governor Francois Villeroy de Galhau said Tuesday that the economy is still benefiting from a catch-up effect and that it needs changes to boost potential growth and ensure a continued sustainable expansion.
China Adds Flesh to Bones of Plan for Big Bang Financial Opening
China’s plan for an historic opening of its financial sector came into sharper focus as the nation’s top central banker elaborated on pledges from President Xi Jinping that have buoyed global markets and eased trade tensions with the U.S. The daily Shanghai-Hong Kong stock connect quota will quadruple to 52 billion yuan ($8.3 billion) from May 1, People’s Bank of China Governor Yi Gang said Wednesday at a panel discussion at the Boao Forum for Asia. More financial-sector opening will be realized by June 30, he said, citing a range of items from limits on foreign insurers to easing foreign ownership caps on securities companies. The fresh details from the new central bank chief may help further ease trade tensions after Xi’s renewed pledges to open sectors from banking to auto manufacturing drew praise from U.S. President Donald Trump. When asked by Bloomberg News whether the financial reforms represented a “big bang,” Yi characterized them as gradual. “I think that the Chinese philosophy is gradualism,” Yi said. “I’ll be very cautious. I even don’t want to use the word ‘bang,’ no matter if it’s big or small. I think this is a prudent, cautious, gradualist move.” Yi’s predecessor, Zhou Xiaochuan, used one of his last public appearances to urge the world’s second-largest economy to “be bolder in opening up.” Wednesday’s comments add specifics to those and other recent pledges by Chinese officials to increase access to its financial system.